Fed Rejects Zions’ Capital Plan

The Federal Reserve objected to Zions’ plan in the test that measures whether the bank could keep lending in a severe economic downturn, according to a report Wednesday. Zions has 30 days to resubmit revised plans with the option to ask for an extension of time, and they must suspend increased dividend payments unless they get the Fed’s approval in writing.

At the low point of a hypothetical recession, Zions’ Tier 1 common ratio, which measures high-quality capital as a share of risk-weighted assets, would be 4.4%, below the 5% level the Fed views as a minimum allowance. The new ratio, unlike the one reported last week by the Fed in a related test, takes into account the bank’s proposed capital plan.

On Thursday, the Fed said Zions lacked sufficient capital to keep lending in a severe economic downturn in the earlier version of the test.

The Salt Lake City regional bank said in January that it would resubmit its 2014 capital plan to the Fed because it planned to reduce the size of its portfolio of collateralized debt obligations, or CDOs.

In a statement last week, Zions noted that it submitted its original plan to the Fed prior to the sale of some of its CDOs, which helped reduce the bank’s risk.

In its report Wednesday, the Fed said it did not find any “qualitative” issues with Zions’ capital planning processes.